Bangladesh Bank (BB) will continue its ongoing expansionary monetary policy in fiscal year 2021-2022 to support investment and employment generation overcoming the economic shock due to the coronavirus pandemic.
The central bank unveiled the new monetary policy statement (MPS) on Thursday with emphasis to push the private credit growth by 11.0 percent by the end of December and 14.80 percent by the end of June in the current financial year.
“Expatriate income has increased a lot during the pandemic period and deposits in banks have increased. At present, country’s banks have around Tk 2.5-trillion excess liquidity. If this excess liquidity creates a bubble in the financial sector, Bangladesh Bank will pick it up,” BB Governor Fazle Kabir said while unveiling the MPS.
The MPS stated that net foreign exchange growth is projected to be much lower in FY 2021-22 than in FY21. The growth of export income, import expenditure and remittance inflow has been projected to be 13, 13.5 and 20 percent respectively in FY 2021-22. As a result, the current account deficit is projected to rise to $5.1 billion and the foreign exchange reserves to $52 billion in FY22. Through the mixed-strategy, Bangladesh Bank is expecting to support ‘continuing efforts of economic recovery process while maintaining appropriate cautions for overall price and financial stability, said the MPS.
“The projection of public sector credit growth is made based on the government’s expected borrowing needs from banks as envisaged in the national budget for FY22,” said the statement.
“The projection of private sector credit growth, on the other hand, has been kept unchanged given the fact that the pace of credit demand will pick up in the coming months with the expectation that the economy will reopen soon as the pandemic containment measures are underway in terms of broad-based national vaccination and other health safety programmes,” the MPS added.
The monetary policy has set an annual safe limit for the growth of massive money supply (M-2) in the fiscal year 2021-22, taking into account the increasing tendency of people to hold cash in their hands due to the influence of the corona over the past two years.
The Bangladesh Bank governor said, “Against the backdrop of the ongoing pandemic, the basic challenges that BB may encounter in the coming months are restoration of full normalcy and extending required fund flow to production pursuits, especially those which have become inoperative causing some degree of job and income losses.”
“Virtually, banks are now operating almost all of their lending activities well below the 9 percent interest rate cap and the existing lower trajectory of lending interest rate along with robust growth in deposits can be a blessing for enhancing the private investment and economic activities during the post COVID period,” said monetary statement.
For this purpose, BB will consider adopting all possible policy options for encouraging new entrepreneurs and for generating new employment opportunities which includes continuation of the ongoing refinance policy with more focus on micro-, small- and labour intensive medium- enterprises especially for the eradication of urban poor existing in the transportation, tourism, hospitality, healthcare and small businesses.
The BB implemented its credit guarantee scheme to expedite CMSMEs financing, particularly towards the light engineering, cluster and value chain, and women entrepreneurs’ development; permitted banks and financial institutions for opening technology driven sub-branch in the rural remote areas by engaging their own-recruited minimal workforce for creating quality jobs and enhancing financial inclusion alongside ensuring proper safety and security; and brought the education sector, perhaps the most affected sector due to Covid-19 pandemic, to the refinance scheme so that both the needy teachers and the students can get their minimum required amount of loans for purchasing necessary electronic equipment, smart devices, stated the MPS.
“BB’s thrust will be to persuade banks and financial institutions to adopt such a strategy so that adequate financing support could be available to all the priority sectors like agriculture, CMSMEs, manufacturing industries, and the somewhat vulnerable sectors such as small businesses including tourism, hotel and restaurant, transportation, privately-run education and training centres, and those sectors where the marginalised are formally or informally employed,” the Fazle Kabir added.
“BB will remain vigilant, continuously monitoring the commodity and assets price developments, along with the progress in money as well as foreign exchange markets, and will take appropriate policy measures as required,” he said.
Side by side, appropriate prudential measures are required to ensure proper use of the fund, preventing any sort of misappropriation. Thus, this monetary policy will try to proactively arrest any deterioration of aggregate demand by supporting new investment and employment generation, and help create enabling conditions for the businesses to normalise production and supply chains, streamlining the proper use of the fund, the BB governor said.